James Pethokoukis

Politics and policy from inside Washington

An August Surprise from Obama?

August 5, 2010

Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.

The move, if it happens, would be a stunning political and economic bombshell less than 100 days before a midterm election in which Democrats are currently expected to suffer massive, if not historic losses. The key date to watch is August 17 when the Treasury Department holds a much-hyped meeting on the future of Fannie and Freddie. A few key points:

1) Republican leaders believe this is going to happen since GOPers and Democratic moderates in the Senate are unwilling to spend more taxpayer money on more stimulus. But such a housing plan would allow the White House to sidestep congressional objections and show voters it is doing something tangible about an economy that seems to be weakening.

2) Wall Street banks are alerting their clients privately to this possibility. Here is what some are cautiously saying publicly. This from Goldman Sachs:

GSE policies are one of a dwindling number of policy levers the administration has left to pull, so it is conceivable that changes could be made, though there is no sign that a policy change is imminent. The Treasury’s essentially unlimited ability to provide financial support to the GSEs creates an interesting situation over the next twelve months: the GSEs could potentially be used to provide additional support for the housing market and, to a lesser extent, the broader economy in 2H 2001.

And this from Mizuho Securities:

As policy makers ponder their next move the data suggests that they face not only a stalling recovery but a growing risk of deflation taking root in the economy. As a result, the Administration has turned back to industrial policies by approving the purchase of a sub-prime auto lender by GM as a means for pumping  up domestic sales, especially since the latest auto sales data indicates that consumers are still responsive to incentives. This precedent increases the risk that the government will use its control of Fannie and Freddie to increase consumer cash flow and juice the economy again.

Moreover, Morgan Stanley is pushing a mortgage relief plan directly to Congress. On August 3, a top Morgan Stanley economist recommended to the Senate Budget Committee that Fannie and Freddie ease their lending standards to allow millions of Americans to refinance their mortgages.

3) Keep in mind the political and economic context. The nascent recovery is already running out of steam. Wall Street economists just downgraded the government’s second-quarter GDP estimate of 2.4 percent to around 1.7 percent. And as even Treasury Secretary Timothy Geithner is warning, the unemployment rate may well begin to rise back toward the politically toxic 10 percent level given such sluggish growth. Many in the White House thought the unemployment rate would be dropping sharply by this point in the recovery.

But that is not happening. What is happening is that the president’s approval ratings are continuing to erode, as are Democratic election polls. Democrats are in real danger of losing the House and almost losing the Senate. The mortgage Hail Mary would be a last-gasp effort to prevent this from happening and to save the Obama agenda. The political calculation is that the number of grateful Americans would be greater than those offended that they — and their children and their grandchildren — would be paying for someone else’s mortgage woes.

4) And don’t think the White House is worried about financial market reaction. If they thought it would pass Congress, they would be submitting a $200 billion Stimulus  2.0  (3.0?, 4.0?) right now.

August is supposed to be a slow month for Washington politics. But maybe not this one.

Comments

No government is more powerful than the population of it’s people when they are awake and mad. The middle class is a very small size group compared to the the rest of us. And of the great mass, people are already on edge with the continued nonsense. Before, the rich knew this and only pushed so far as to not rile up the population. I read an article when bush was first elected that quite a few big guys in business were very very concerned of the fact that things would be pushed too far and cause alarm, thus wake up the sleeping average man in this country.

What is about to happen is a full fledged class war in America, and we were warned of this in Berkley by a political activist giving a speech there and using China as an example of what they have gone through and about to go through again. A sleeping giant, is the jest of what I heard continued in his speech. These hard working people do reach a limit of what they can take.

Government is too stupid to notice this, or simply think that it will not happen no matter what they pull. But many examples show otherwise. It will be on a scale that is unimaginable, America bought more guns recently than all the guns found in Russia. Ammunition factories have for some time gone to working around the clock to keep us with demand. Gangs found in the streets have sky rocketed to the point that police are talking about it on blogs that are often dedicated to the personel of police forces. And we can go on if you wish in pointing this out, that the tention is about to bust. It is like the fall of Rome, and it is about to happen to us.

At the same time, Russia has been playing us. They are ready to step in and intervene. Look up what kind of missiles Russia has and how they have chosen a war man that does not mess around. Look at what happened in Ossetia and Georgia. We have pushed them to the point that “they have to respond”. This is what we get for all us citizens day dreaming and acting like irresponsible idiots. China is also playing us, an a pack has been formed to counter the american threat that just wont go away. We are really really a bunch of idiots.

North Korea is also about to shoot missiles at us from afar. With all the military exercises going on their cost. The add the sales of massive lots of weapons to Taiwan, China is about to jump out of their seat. In fact, their missile building has increased during the Bush / Obama years to increase over 300 percent. And the quality of gear they are building is so good that America’s battle ships were warned to stay away or they would be sunk with a single missile. It is common knowledge that they all stay the distance which is quite far. In fact these weapons are so good that America has no other response but nuclear if fired upon.

The missile shield is crap, and the Russians are painting their missiles white to avoid the whole system. America really is putting out that kind of crap for gear. Yes, we may have more stuff, but look at the idiots who us it. Russia on the other hand builds stuff not for a profit, but to actually protect their county and people there will work for the military for free. America does not think this, it is always about profit. They also said if the shield goes up next month, that they will respond not with missiles, but drive a military force in to tear it out. And they will do it, and it will be under the eyes of the media so the bull we say on our media will be looked upon as not facts but propaganda as they did with the force sent to Ossetia.

America, if the oil spill did not wake you up, this better. You are about to get hit by Russia. I mean, what would you do if your country had ships parked within sight of your beaches, and missile batteries around all sides of your borders, and idiots for presidents and generals. Oh my god, we are about to see the consequences for our very very irresponsible behavior that seems to have no end. Look it up, Russia needs only a minute to reprogram their missiles to hit any target they want. Right now, they are pulling their nuclear fleet to the arctic where they will sit and punch the buttons. They have very sophisticated weapons, and Russia thinks like this. They build Bio weapons, and Nuclear weapons to the sum amount that will kill the entire world over ten times, ten times.

Want to play a game?

Posted by skateboardkid | Report as abusive
 

Did you get equally upset when you handed those vast funds to the unproductive ivy league welfare recipients as well?.

As I see it- this is more stimulus of bad stock- just like the first stimulus welfarising the rich. Didn’t work then, won’t work now.

Time to produce the goods you consume!

Posted by wokkathon | Report as abusive
 

What about all those poor responsible folks who bought a house during the housing bubble and through hard work have already paid off the mortgage???? Does a hardworking stiff ever get something for nothing? There are 820 days until the next presidential election and we need to bounce this fool out.

Posted by auto.pilot | Report as abusive
 

Here this, government idiots: Let’s say two neighbors both got the same mortgage at the same time on similar houses, but from two different lenders (Big Bank and Small Bank). One loan was sold to Fannie Mae by Big Bank and the other was not sold to Fannie, but remains on the books of Small Bank. Are you telling me that the borrower who got his loan from Big Bank gets part of his loan forgiven, simply because his loan was sold????, but the borrower who got his loan from Small Bank still owes the whole amount???? Does ANYONE in our government understand supply side economics?

Posted by auto.pilot | Report as abusive
 

people, the wheels are coming off this bus. if you can’t see this, you need to wake up. soon, lines will be drawn. the illusion is fading, and the reality is beginning to appear. you will not make it out alive. prepare yourself for the time beyond time.

Posted by 187USA | Report as abusive
 

Just another progressive slush fund…follow the money.

Posted by squirrel533 | Report as abusive
 

Wouldn’t it be great if the gov’t would pay all the homeowners mortgages off which would allow for more homeowner spending. I believe that instead of giving to main street the gov’t should help the homeowner. 15 million homes could produce buying if there was more money in their bank instead of the mortgage companies.

Posted by dannyboy9959 | Report as abusive
 

HUD recently sent a letter to mortgagees/lenders basically encouraging them to reduce principal on mortgages where the principal amount exceeds the home value. The Treasury provides the lenders and 2nd lein holders monetary incentive paid for by the U.S. Taxpayer.
(the formula for determining their incentive payment can be found here: https://www.hmpadmin.com/portal/docs/ham p_servicer/sd1005.pdf

I don’t know about you, but I have paid my mortgage payments during the past 20 years even when my principal owed was more then the value of my home in the 1980′s. Purchasing a home is a long term investment. The value changes with demand for homes.

As long as the borrower has the means to pay their mortgage they should not have their loan modified and principal forgiven at the expense of taxpayers.

Even those that are behind on the mortgages should only be provided the opportunity to refinance at the current historically low interest rates; and only if they qualify. Too many of these rewritten loans have defaulted a second time at the expense of taxpayers.

If a lender wants to avoid a foreclosure by reducing the principal and rewriting the loan at current interest rates it should not be done at the taxpayers expense. It is to their own advantage to do so as if they foreclose the house will likely sit there and the cost of maintaining it and advertising it will far outweight reworking the loan with the borrower.

Fannie and Freddie are still making loans that do not require even 10% down. They continue to buy bad mortgages and now the Treasury is going to give them Billions more and are authorized to continue to do so.

Enough already. No more Federal Money to bail out Fannie and Freddie which are now basically owned by the Federal Government. It has to stop.

This is why they didn’t include them in the new Financial Regulations Bill which the Dems said did not promote bailout financial institutions because they were too big to fail. They knew they would be bailing out Fannie and Freddie for years.

Posted by fedupwithfedgov | Report as abusive
 

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